On January 11, 2019, Monongalia Circuit Court Judge Susan B. Tucker entered an order granting the Plaintiff’s motion for Hayseeds damages against an insurance broker in the case of Marine One, LLC d/b/a Cheat Lake Marina v. Dyer, Heflin, Bowers & Eckels Insurance Agency, No. 15-C-575.
The case arose after the Plaintiff, represented by Bailey & Wyant, sued its insurance broker for negligent procurement when a dispute arose as to the existence of coverage under a policy sold to the Plaintiff through the broker. The insurance broker was covered under a professional liability policy and attempts to settle the suit before trial were unsuccessful. After a jury returned a verdict in its favor, the Plaintiff filed a motion for first-party Hayseeds extra-contractual damages for its attorneys’ fees and litigation expenses, even though its suit was a third-party negligence claim against its broker.
In an unprecedented ruling, Judge Tucker held that insurance brokers are “insurers” for the purposes of Hayseeds first-party bad faith litigation because insurance brokers are responsible for soliciting, negotiating, effecting, or countersigning insurance contracts and “for all intents and purposes, including Hayseeds litigation, the agents acted [sic] stood in the shoes of the insurers [and] public policy mandates that they be held responsible for their actions under the same case law.” Of course, on its face, there are multiple problems with this ruling.
First, the insurance broker did not solicit, negotiate, or countersign any insurance contract between the Plaintiff and the broker’s professional liability insurance company. Instead, it brokered a policy between the Plaintiff and a different insurance company. A suit against the Plaintiff’s own insurance company would be a first-party claim for breach of contract and the implied covenant of good faith and fair dealing. A claim against the Plaintiff’s broker is a third-party claim for negligence.
Second, as the court held in Graham v. National Union Ins. Co., 2013 WL 870298 at *5 (S.D. W. Va.), “Hayseeds damages are only available to insureds who ‘substantially prevail’ against insurers in lawsuits involving first-party insurance.” Again, the only first-party insurance policy involved was issued to the Plaintiff by another insurance company against which the Plaintiff did not bring a first-party action, not the broker or the broker’s insurer
Finally, even after the Plaintiff prevailed on its first-party Hayseeds claim against its broker after prevailing on its third-party suit against that broker for negligent procurement, it filed yet another suit against both its broker and the broker’s professional liability insurer alleging civil conspiracy, breach of contract, and first-party common law, and first-party statutory bad faith.
Plainly, by securing first-party Hayseeds damages in a third-party suit against a broker for negligent procurement and by suing its broker and the broker’s professional liability insurer for first-party bad faith seeking the same Hayseeds damages it has already been awarded, the Plaintiff is attempting to resurrect third-party bad faith that was abolished by the Legislature in 2005. W. Va. Code § 33-11-4a.
Moreover, the West Virginia Insurance Commissioner’s unfair trade practices regulations were thereafter adopted to define a “third-party claimant” as “any individual, corporation, association, partnership or other legal entity asserting a claim against any individual, corporation, association, partnership or other legal entity insured under an insurance policy or insurance contract of an insurer.” W. Va. C.S.R. § 114-14-2.8.
Here, the Plaintiff, a corporation, sued its broker, which was “insured under an insurance policy or insurance contract” by its professional liability insurance company. Thus, under West Virginia law, the Plaintiff was a “third-party claimant” and any suit for bad faith damages is barred under West Virginia law.
The Marine One decision by Judge Tucker is clearly contrary to West Virginia law and, together with the new bad faith suit, present a serious threat for the resurrection of third-party bad faith that could result in higher insurance premiums and fewer choices for West Virginia consumers of insurance coverage that precipitated the legislative abolition of third-party bad faith in 2005. It will be the subject of an appeal to the Supreme Court of Appeals of West Virginia and it is anticipated that it will receive amicus support from a number of the same organizations that successfully lobbied for the legislative abolition of third-party bad faith.